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Payments to lender under investigation

Education Department wrote off $278-million.

By ASSOCIATED PRESS
Published May 11, 2007

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WASHINGTON - The Justice Department is reviewing an audit that found hundreds of millions of dollars have been improperly paid to a student loan company, House Education Committee Chairman George Miller said Thursday.

Miller, D-Calif., made the review public during a hearing in which he pressed Education Secretary Margaret Spellings on her decision to ignore a recommendation by her department's inspector general, John Higgins, to recover an estimated $278-million.

The Justice Department declined to comment Thursday.

Spellings defended her decision not to recover the improper payments to the lender, Nebraska-based Nelnet, saying it was prudent to simply extract a promise from Nelnet that it would halt the practice, avoiding a costly lawsuit.

Some lawmakers were skeptical.

"Do you not have confidence in your inspector general?" asked Rep. John Tierney, D-Mass. "I'm extremely uncomfortable with this."

Spellings also traded barbs with Miller over allegations that the department's oversight of the student loan industry has been lax.

Miller said the department failed to do its job when it came to uncovering improper relationships between student lenders and colleges or student loan officials at those colleges. He pointed to a 2003 notice from Higgins' office urging the department to curb inducements made by lenders to colleges or their staffs.

Miller said the department promised it would keep an eye on such activities, a response he called inadequate. Spellings countered that the department has done what it could under existing law. "We monitor these programs vigorously, " she said.

"Who is monitoring? Do they have blinders on?" Miller asked.

New York Attorney General Andrew Cuomo has been leading an investigation into the $85-billion-a-year student loan industry. He has found evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools and found college loan officers got gifts from lenders to encourage them to steer borrowers their way.

Cuomo said Thursday that he had reached a $3-million settlement with Student Loan Xpress Inc. and its parent company CIT Group Inc. Student Loan Xpress also agreed to cooperate with the investigation into potentially improper stock transactions.

The congressional hearing came a day after the House overwhelmingly passed a bipartisan bill that would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies.